A potential homebuyer looks at a property model in Yantai, Shandong province. (TANG KE/FOR CHINA DAILY)
Guangzhou in Guangdong province on Wednesday became the first tier-one city in China to ease its policy on residential property purchases and categorize households with mortgage records but no local home ownership as first-time homebuyers.
The latter will enjoy favorable down payments and mortgage requirements.
The move came after the central authorities announced last week they will let city-level governments to decide on the matter.
Experts said more big cities may follow suit as China has relaxed property policies to revive the sluggish real estate industry that has been dragging the overall economy down. Expectations have also been building for banks to lower existing mortgage rates.
Experts said further optimization of China's real estate policy will stimulate domestic demand while dismantling risks, adding new impetus to the recovery of the Chinese economy.
One of the four first-tier cities in China — Beijing, Shanghai and Guangdong's Shenzhen are the other three — Guangzhou said in a notice that financial institutions should treat homebuyers with no local home ownership as first-time buyers, regardless of whether they have taken a loan to buy a home in the past. First-time homebuyers usually enjoy lower mortgage rates and smaller down payments than others.
The optimization of the mortgage policy aims to propel stable and healthy development of the property market, the city government said.
"It's possible that peer cities may follow suit, though the degree of policy relaxation could vary," said Zhang Shuncheng, associate director of China Corporate Research at Fitch Ratings.
The new policy, if implemented, should help release pent-up demand from homebuyers who have sold their existing homes and those who only purchased a nonlocal home via a mortgage, probably leading to a temporary sales rebound in those cities, he said, adding although a sustained recovery is unlikely without a fundamental turnaround in homebuyers' sentiment.
Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co Ltd, said that to revitalize the real estate industry, the authorities should continue to optimize financing policy and improve liquidity for developers.
More importantly, stronger purchase and mortgage policy adjustments are needed to further boost the slack demand, especially by fulfilling people's needs to buy better homes, he said.
"While adhering to the principle that 'houses are for living in, not for speculation', different measures to ease purchase and mortgage restrictions could be adopted in different cities and even districts within a first-tier city," he said.
Since the start of the year, some second-tier cities, including Hangzhou in Zhejiang province and Tianjin, have eased real estate mortgage policies.
So far, three first-tier cities — Beijing, Shanghai and Shenzhen — and at least 10 major second- and third-tier cities like Xi'an in Shaanxi province and Changsha in Hunan province, still adhere to strict mortgage policies that recognize households having neither home ownership nor mortgage record as first-time homebuyers.
In moves that were welcomed by homebuyers who took out mortgages, the central authorities signaled in recent weeks that banks should lower mortgage rates on existing loans.
Many banks have expressed readiness. Lin Li, vice-president of Agricultural Bank of China, said at a conference announcing the lender's interim results that the bank will formulate specific rules and improve provisions of relevant contracts as soon as possible as long as policy measures in this regard are officially released. It will also accelerate the transformation of the bank's operational system, to actively implement the adjustments.
Xie Zhibin, vice-president of China CITIC Bank, said the bank has already outlined arrangements on potential operational adjustments in response to likely mortgage rate cuts.
Vivian Xue, director of APAC Financial Institution at Fitch Ratings, estimates that outstanding mortgage loans that originated between 2018 and 2022 now carry a relatively high interest rate of around 5 percent, which suggests banks could cut the rates on outstanding mortgage loans by as much as 80 basis points, in order to align with the current five-year loan prime rate of 4.20 percent and weighted-average rate for incremental mortgages of 4.14 percent.
Nevertheless, the actual adjustment is likely to be more moderate, she said, adding a mandatory blanket rate reduction across all outstanding residential mortgages is also unlikely.
Lin Jinlu, an analyst with Dongxing Securities, said banks may first reduce the mortgage rates in a pilot project, and then roll out different rates in different regions and for different client groups, to alleviate impact on short-term net interest margins.